Thursday, November 17, 2005

ON FOCUSING ON THE RIGHT BUBBLES

"Bubble 2.0-The APIs", read the headline of Tom Evslin's lead post today. And it's a very good post on how APIs make platforms worlds go around, with the historical backdrop that Tom always does so well.

The part of the title that got me though was "Bubble 2.0", which of course is not the subject of Tom's post. It's used here as a short-hand to refer to what many believe exists today as companies (read entrepreneurs and VCs) rush to innovate around so-called "Web 2.0" technologies.

And it of course reminds us of the big "Bubble 1.0" that took the "Tech/Internet/Telecom"-laden Nasdaq down from almost 5000 to within shouting distance of a 1000 almost five years ago.

At almost 2200 today, we're more or less back to the area we were at around between 1999 and 2000, but it's a vastly different world today in terms of public market "froth" and IPOs popping everyday. If you need a reminder of what that looked like, I'd recommend perusing through the chapters of Tom's book "Hack-Off", which is an "Internet murder mystery" set in those wild and woolly times.

But what's worth pointing out is that we're nowhere near another Bubble, 2.0 or otherwise.

If you want to compare today to any Internet time point in the last ten years, a subject I'm intimately familiar with, I'd say we're in the 1995-96 period, when the emerging internet platform was making possible a whole array of new commercial opportunities in sectors as disparate as Access (ISPs), software and networking infrastructure, and consumer and enterprise internet services.

We're beginning to remake all those layers and services today with the new technologies and APIs that have evolved over the last few years.

But there is no equivalent "Bubble" in the financial markets.

Just the natural, rapid evolution of technologies as one set replaces the next, zooming down the cost/performance curves of Moore, Metcalfe, Reed, and others.

Some observers do point the increasing rush to build companies to sell (aka "exit") to the big public internet companies (GYMAAAE) or big public incumbent companies in mainstream industries. Today's speculation that Google may buy Riya (via Om Malik), an innovative photo service company is a case in point (see my posts on Riya here and here). These private transactions generally do not represent a Bubble in my view, especially given the relatively early stages of this trend.

But no one wants to miss the next "Big Show" of a bubble bursting, so everyone is prematurely calling the next one, so as not to miss it this time.

However, the focus is on the wrong "Bubble".

The aforementioned internet-driven technology evolution is now mainstream. Broadband is mainstream. Using the Internet for tasks personal and professional is mainstream. Introducing Internet-driven functionality in almost every industry on the planet is mainstream.

And it's mainstream across the age spectrum. Young and old have come to depend on Internet-driven functionality everyday.

And most importantly, Internet forces are starting to become mainstream in almost every marketplace in almost every industry imaginable.

This means we need to start to focus on another type of Bubble.

The Long Lasting Bubbles, or LLB for short.

The Long Lasting Bubbles that have been with us so long that we barely recognize them as Bubbles. Some have already started to deflate, others are imminent. Some familiar examples:

1. The local and long-distance telephone markets were an LLB, held together by decades of regulation-coddled oligopolies. They made sense at a time when communications were a matter of laying out expensive physical networks. But those times are passing, but the Bubble is still with us.

2. The media industries globally, be they broadcast, cable, movies, publishing, radio or satellite, have all enjoyed the long-lasting bubble of pricing and distribution protection that is slowly being attacked by technology. Spectrum regulation made sense when spectrum was truly scarce due to the limitations of our technology, but inreasingly is abundant as those limitations are overcome.

3. The global advertising and direct marketing industries have enjoyed their own LLB for decades that is rapidly going to change. Umair over at the aptly named Bubblegeneration eloquently answers the question "Why?":

"Because attention becomes scarce at the margin. Attention used to be
like water for the media industry - cheap, plentiful, and available
pretty much ubiquitously. Now, it's like oil - expensive, scarce, and
subject to more and more severe shocks."

These three examples are generally well known to the readers of these technology blogs, partly due to our focus on GYMAAAE (Google, Yahoo!, Microsoft et al). That's not new.

What is new is that we're not used to thinking about them as Long Lasting Bubbles that will not pop with a bang, but a long, drawn out hiss. We don't recognize them as bubbles because they grew slowly over a period of decades, becoming a part of all the current generations living on the planet.

And we need to recognize and start calling them bubbles because language is important and it shapes market place perceptions and prices.

Collectively, they still represent over a trillion dollars of market capitalization globally across a wide range of industries, many with revenue and profit growth starting to slow or in a decline.

As an aside, it's one of the reasons why many of these companies are consolidating as fast as possible and/or being bought up by companies with burgeoning private equity war chests in the hope of being "made more efficient" through reorganizations.

Many of these companies are rapidly, desperately trying to remake themselves while fighting to slow the air leaking from the increasing pin pricks in their business models.

And they're fighting with every means of their disposal. It'd be OK if they were just battling it out in the marketplace. But in most cases they're using the protection of the laws, rules and regulation, at every level of government.

By the way, these LLBs exist in almost every other industry out there. The ones highlighted above just happen to be the ones most currently visible from a consumer perspective, and thus of most interest to the business and mainstream media.

But it's time we shifted focus from the Bubble 2.0 that isn't there, to the many, many long-lasting bubbles that have been right under our noses for most of our lives.

They just no longer need to be bubbles. Many of these companies will disappear, but many will remake themselves and/or will be re-made, converting the forces confronting them into tail-winds. But it'll be a long-drawn out process in most cases. But they're still deflating bubbles.

Just remember when we were all kids and we all loved bubbles...especially the long lasting ones...and what fun it was when THOSE finally popped.

TrackBack

» A long Lasting Bubble? from The Geek Guy Rants
Umair at bubblegeneration makes a good point:
“Because, attention becomes scarce at the margins. Attention used to be like water for the media industry- cheap, plentiful, and pretty much available ubiquitously. Now it’s like oil- expensive, scarc... [Read More]

Tracked on Friday, November 18, 2005 at 05:47 PM

» The Tower of Babble 2.0 from The Bay Area Is Talking
It's funny, my boss e-mailed this story to me at about the same time as I saw this post from Om Malik, referencing John Battelle's story in the New York Times (free reg req) which argues that we're at the... [Read More]

Tracked on Friday, November 18, 2005 at 06:18 PM

Comments

Perhaps instead of yet another TLA, perhaps we could use another word denoting a sackful of hot air: Balloon?